10/07/2008 @ 6:00AM

America's Luxury Foreclosure Capitals

Just because a neighborhood is full of swimming pools and luxury cars doesn’t mean the guy around the corner is making his mortgage payments.

Take plush Laguna Niguel, Calif. This South Orange County community has 61,891 residents and borders glamorous beach cities like Laguna Beach and Dana Point, but it has the highest number of bank-owned properties–210–of the ZIPs we examined. These foreclosures have likely contributed to the decline of the area’s median home price, which has fallen by $52,750, or 7.2%, to $679,500 in the last year.

San Juan Capistrano, Calif., was second on our list with 190 repossessed properties among 33,826 residents. Just a few miles away, banks own 181 homes in the 4,000-acre, 23,140-person planned community Ladera Ranch. Median homes in these cities sell for $685,000 and $704,409, respectively.

In Northern Orange County, 24,044-strong Tustin Foothills came in at No. 4 with 165 bank-owned homes. The San Jose-area ZIP 95148 has 44,401 residents and lands at No. 5 with 157 bank-owned properties.

Besides relatively high rates of foreclosure, these spots have location in common–all are in California. In fact, 24 of the top 25 troubled spots were in the Golden State, and nine of them were in Orange County.

Southern California’s sunny climate and 42-mile stretch of beach makes it a desirable locale in which to settle. But a handful of homeowners who bought at the peak with adjustable and no-down-payment mortgages are now sending their newly minted keys back to the bank.

Behind the Numbers

In compiling our list, we examined the median home sale prices in the country’s 500 most expensive ZIP codes with data from First American CoreLogic. Then, we looked at July foreclosure rates in these areas, according to foreclosure listing firm RealtyTrak.com.

For median household income and population figures we used numbers from the 2000 Census. For areas not covered, we instead went with recent statistics furnished by the local government.

Numerous factors affect an area’s rate of foreclosure. Unemployment and falling home prices certainly play a part.

Sen. Dick Ackerman might argue that weather plays a role. He represents a sizable chunk of South Orange County, including Laguna Niguel, and says that there is something about the desirability of the area that makes the real estate market swing a little too far during boom and bust cycles.

“People bought high-end homes when the economy was good, and then the economy went down a tick, and now some people can’t make their payments,” he says. “It happens in cycles, but this time we’re seeing more of it.”

Moody’s Economy.com economist Mark Zandi agrees.

“The combination of rising unemployment and falling home prices drives foreclosure,” he says. Southern California is experiencing both. “It was a through-the-roof boom and a through-the-floor bust.”

But high-end enclaves up north are also feeling the squeeze. The 33,556 residents of Morgan Hill, in Santa Clara County, saw median home prices decline by 6.9%, or $53,000, to $717,000. Its 120 bank-owned properties likely contributed to this slide.

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This could have something to do with California’s bank repossession process. It is considered extremely efficient. This means the majority of these transactions go through a non-judicial process where the defaulting homeowner, lender and local officials quickly settle the matter themselves. In states like Florida, foreclosures can drag on for more than a year, and it takes longer for the market to work out those who can’t afford their homes and begin to recover.

And because most of these well-heeled borrowers took out jumbo loans, they are now priced out of government programs that would let them refinance.

“This is a phenomenal time for buyers even though it’s tragic for people losing their homes,” says Steve Rodgers, chief executive of Prudential California Realty. “It’s leveling the playing ground by increasing affordability in Southern California. There’s tremendous opportunity out there.”